ACC501 Business Finance Assignment 1 Solution Fall 2014

Question:
Below is the balance sheet and income statement of Mega Corporation for the year ended June 30, 2013.
Mega Corporation
Balance Sheet
As of June 30, 2013
Assets
Rs. (million)
Current Assets
Cash
225
Accounts receivables
310
Inventory
328
Total Current Assets
863
Fixed Assets
Plant and Equipment 7077
Less Depreciation 550
6527
Furniture and Fixture
50
Total Assets
7440
Liabilities and Equity
Accounts payable
308
Notes payable
1427
Total current liabilities
1735
Long term debt
2358
Owner’s Equity
Share capital
1000
Retained Earnings
2347
Total Liabilities and Equity
7440
Mega Corporation
Income Statement
For the year ended June 30, 2013
Particulars
Rs. (millions)
Sales
4053
Cost of goods sold
2780
Depreciation
550
Income before interest and tax
723
Interest paid
502
Taxable income
221
Tax @ 34%
75
Net income
146
Dividends 47
Addition to retained earnings 99
Required:
a. Based on the above financial statements of Mega Corporation, compute the ratios mentioned in the below table and interpret the results of ratios thereof. (20 Marks)
Sr. #
Ratios
1
Current ratio
2
Quick ratio
3
Cash ratio
4
Interest Coverage Ratio
5
Inventory turnover ratio
6
Account receivables turnover
7
Days’ sales in inventory
8
Days’ sales in receivables
9
Total Debt ratio
10
Dividend Payout ratio
b. Compare your computed result with industry averages given below, thereby indicating strong and weak areas of Mega Corporation. (5 Marks)
Sr. #
Ratios
Industry Averages
1
Current ratio
2 times
2
Quick ratio
1 times
3
Cash ratio
0.50 times
4
Interest Coverage Ratio
2 times
5
Inventory turnover ratio
7 times
6
Account receivables turnover
14 times
7
Days’ sales in inventory
45 days
8
Days’ sales in receivables
30 days
9
Total Debt ratio
60 percent
10
Dividend Payout ratio
30 percent
NOTE:
Complete calculations are required for every part of the problem. Incomplete calculations will result in loss of marks.
Solution:

part A is:

  1. 0.497
  2. 0.308
  3. 0.129
  4. 1.44
  5. 8.47
  6. 13.07
  7. 43.45
  8. 27.92
  9. 0.550
  10. 0.321

part B is:

  1. Strong
  2. Strong
  3. Strong
  4. Strong
  5. Weak
  6. Strong
  7. Weak
  8. Weak
  9. Strong
  10. Weak
DOWNLOAD SOLUTION HERE
loading...